When an Ohio couple encounters financial difficulty, there are a number of available options. Personal bankruptcy is one example, and it can provide swift and lasting debt relief for many. However, when one spouse owns a business, it becomes very important to understand and follow the rules and regulations that apply to the bankruptcy process. Failure to do so can result in an outcome that is far from what was intended.

An example is found in the case of a man who sought personal bankruptcy protection with the intent of leaving his wife’s business interests out of that process. The wife had struggled with illness, and her husband stepped in to manage her business interests. He did not maintain an adequate separation between the couple’s personal and business accounts, however, which led to serious problems after he filed for bankruptcy protection.

The husband used his wife’s business accounts to pay for personal expenses and also deposited their paychecks and his Social Security income directly into the business accounts. When a lawsuit was filed asserting that his wife’s personal and businesses interests should be included within her husband’s bankruptcy estate, the court agreed. It was determined that the businesses were essentially an alter-ego of the husband, and therefore part of his personal wealth.

As a result, the wife’s business interests became part of her husband’s personal bankruptcy case, even though neither party intended that to be the case. The matter serves as a warning to all Ohio business owners about the need to understand bankruptcy law prior to filing. Had this couple made different debt relief choices, it is possible that the wife’s businesses would not have been drawn into the personal bankruptcy case.

Source: Bloomberg BNA, “Sick Wife Drawn Into Husband’s Bankruptcy Troubles”, Stephanie Cumings, Dec. 21, 2015